Can Unsecured Creditors Take My Car For An Unpaid Debt?

A finance company that loaned you the money to buy the car is a secured creditor. If they registered a lien on the car, then they have a right to seize the car if you default on your payments. If you have an unsecured loan however, like a payday loan or credit card loan, is your car safe from seizure and sale to recover the debt? The answer might surprise you.

What I am talking about is a Judgment Creditor. For example, you failed to pay your cash instalment loan from some payday company or on-line lender. They have no right to your car, but your creditor might take legal action and apply to the court for a judgement against you for the debt in question and then ask for a Writ of Seizure or Writ of Execution against your car. If they receive such an order, they can then ask a sheriff or bailiff to seize your vehicle (or any other asset under the order). So will they?

Ontario Exemption Limits

Ontario has something called the Execution Act and included in this law is a clause declaring that a motor vehicle worth up to $6,600 (as of December 1, 2015) is exempt from seizure. Sounds like your car is safe (if it is worth less than $6,600), but is it?

You Must Claim Your Exemption Within 5 Days

Ontario recently changed the exemption laws surrounding creditor action. As of December 1, 2015, the Execution Act also added a new section that deals with what to do if an exempt item has been seized.

The new law says that if a sheriff or bailiff picks up an item that “may” be exempt under the law, they are required to serve notice on the owner (or the owner’s last known address) that the owner has the right to claim the exemption. If a claim is not made in 5 days from the date of service, then the item is no longer exempt. If a claim is made within the 5 days, but the owner fails to pick it up in a reasonable length of time (which is not defined in the Act), it also loses its protection.

This means that a creditor with a judgment against you that has obtained a Writ of Seizure or Writ of Execution could seize your car, hoping that you won’t claim the exemption in time, which would allow them to sell it. I don’t think a reputable lender would do such a thing, but unfortunately, there are some less than reputable businesses out there.

Voluntary Consent To Sell

An interesting side effect of these new rules is that you have the right to say to someone that has seized an item (like your car) that you want to claim the exemption, but will consent to the sale of the item. In these cases, the proceeds from the sale first cover the costs of the sale, and then go to you, up to the exemption limit for the item.

For example, you owe a loan company $10,000 for some on-line debt and they sue you and obtain a Writ of Seizure. You allow them to take your car and sell it, but you claim your exemption limit of $6,600. The car sells for $8,000 at auction. The costs to sell are 15% or $1,200, so there is $6,800 left over. The first $6,600 has to be paid to you. The loan company will get $200. Which may make you ask, why did they bother? Just to be nasty or perhaps to threaten you into paying more than the $200 to save your vehicle.

What To Do If You Are Sued

What does all of this mean to you? If you are being sued for a debt, pay attention to the notices that you receive. If something you own is seized and you didn’t pledge it as security for the loan, then make sure you take the time to submit a claim for the exemption if you want the thing back, or the money from the sale.

Filing for bankruptcy protection or filing a consumer proposal will stop a lawsuit, or if your creditor already has a Writ of Seizure, bankruptcy or a proposal can stop that too.

If you find yourself being sued and you feel you don’t owe the debt or want to dispute the suit, you may want to speak with a lawyer.

If you agree the debt is real and you simply can’t pay, you may want to talk to a licensed insolvency trustee about your options. If you are being sued by one company and there are others that you are also indebted to – it may be time to consider a bankruptcy or proposal to clean up all of your debts.